At yesterday's seminar held by the Thailand Development Research Institute (TDRI) - "Towards Clarifying Government Rules and Regulations; Issues stemming from the sale of Shin Corp" - economists said the law was perceived one of the most protective in the world against foreign investors.

Its lax enforcement and inconsistent treatment by the government, they said, could discourage foreign investors from entering the country.

Other countries protect only a small section of their industrial sector, but with strict enforcement. Yet Thailand has an expansive but poorly enforced law, which is confusing for potential investors, the economists said.

Deunden Nikomborirak, a TDRI researcher, said the lax enforcement of the Alien Business Law, which protects a wide range of service industries, could be seen when one looks at the high percentage of the capital held by foreigners in companies listed on the Stock Exchange of Thailand (SET).

For instance, in spite of the restrictions limiting foreign investment in telecommunications, the capital held by of foreigners in the industry is the highest among all sectors - at 65.07 per cent - while foreign investors hold 40.86 per cent of the capital of listed firms in the service sector. Ironically, these are both deemed protected sectors by the Alien Business Law, which was amended in 1999.

The question of the nationality of a company became a highly politicised topic after the government was pressurised to investigate whether Kularb Kaew Co Ltd is a proxy of Singapore's Temasek Holdings, which acquired Shin Corp earlier this year.

Deunden said that although the Alien Business Law - introduced in 1972 - stipulates that holding shares on behalf of another company is a violation of the law, the SET's website has invited foreign investors to use the "nominee" loophole in the law to attract portfolio investment because foreigners are not allowed to hold a majority share in various sectors.

Ammar Siamwalla, the TDRI's honorary adviser, agreed with Deunden's view that the law had many discrepancies. "It is a product of compromise between the force to protect local industries and the country's desire to attract foreign investment," he said.

Deunden said that in 1991 the problems caused by the ambiguous wording of the Alien Business Law had prompted the government to amend the law a year later.

In 1991, Switzerland-based ABB Distribution Ltd applied to set up a company in Thailand with a registered capital of Bt60 million, divided into 600,000 shares at Bt100 each. The Swiss firm was to hold 294,000 ordinary shares or 49 per cent of the total. Thai shareholders were to hold the remaining 51 per cent through preferential shares.

At that time, the Commercial Registration Department regarded ABB as a Thai company because Thais held a majority - 51 per cent - of the shares. But others said the company was not Thai as Swiss investors also held some shares through holding companies.

The issue was finally considered by the Council of State, which decided the company was not Thai, citing the intention of the law to maintain the Thai majority share in a company.

That conflict over legal interpretation prompted the government to amend the Alien Business Law in 1992 to allow foreigners to hold indirect shares in Thai companies whose businesses are subject to protection.

The amended law was aimed at developing the local economy. Deunden said the presence of foreigners in certain industries helped avoid monopolistic tendencies.

However, although the law prevents Thai investors from holding shares on a foreigner's behalf in protected sectors, Deunden said there had been several cases in which Thai investors have apparently been the nominees for foreigners.

Supavud Saicheua, managing director of Phatra Securities, said the government should be careful when it comes to the definition of a "nominee" because it will serve as a benchmark for the future.

"I was alarmed to learn that a nominee is not the only party who will be subject to jail punishment, but also the lawyers and people who were involved in the deal," he said.

If this is the case, foreign companies may not want to risk their reputations by investing in Thailand while the law is not clear, he said.

Jeerawat Na Thalang

The Nation